France: Don’t Look Now, But . . .

President Hollande

I’ve been meaning to offer some observations on what appears to be the disastrous start out of the box for France’s new president, Francois Hollande, whose Socialist Party saw its strength grow with the follow on parliamentary elections. So what does he check off first on his to-do list? Lowering the retirement age, from 62 to 60, for several classes of government employees. I imagine Scott Walker won’t be vacationing in France any time soon.

This contrasts with the last Francois France elected—Mitterrand in 1981. Mitterrand wanted to have more socialism (I believe he even had a couple of Communists in his cabinet), but reality quickly intruded and he reversed course in many areas, ultimately aping the reforms of Reagan and especially Thatcher. The Economist takes note of this, and warns that France may slip into Spain-Italy-Greece territory before long:

France is a rich country. But it is more vulnerable now than in 1981, when Mr Hollande’s Socialist predecessor, François Mitterrand, tried and failed to implement a form of socialism in just one country. French public debt is almost 90% of GDP, compared with just over 20% back then. It has already been downgraded by one ratings agency. Nervous markets see France as more like Spain or Greece than Germany or Austria. That view is only reinforced when Mr Hollande joins the leaders of Spain and Italy in pressing Germany to be unconditionally generous with its credit, a tactic that seems sure to mar his relations with Germany’s Angela Merkel.

In the end Mr Hollande will meet reality, just as Mitterrand did. A weakened France has no alternative but to embrace structural reforms and liberalise its economy. And it will surely take less than the two years Mitterrand had before changing course. In the meantime a powerful President Hollande could wreak much damage on his country.